The State of the Job Market, March 2010

The latest employment report provides the strongest indicator to date that the U.S. job market has begun to rebound. After more than half a year in which the nation’s economy grew but payroll employment stagnated or fell, we now see clear evidence that employers are adding to their payrolls. Unlike previous months in which payroll gains were limited to the health and education sectors and to temporary help agencies, the latest report suggests that job gains are now more broadly distributed across the private economy.

In March there were small gains in manufacturing, construction, and many service-producing industries. The temporary help industry continues to register strong gains. Employment in that industry has risen more than 18% since it began growing again last October. This is usually an early indicator that demand for employers’ products is outstripping their ability to satisfy that demand with their present staff.

The March employment gains shown in the household survey are considerably bigger than those in the employer payroll survey. Last month household respondents reported an increase of 264,000 people employed versus only 162,000 additional jobs according to the payroll survey. This continues a pattern that has been evident since the start of the year. The estimates from the household survey show that the number of employed workers has increased 933,000 since last December. That is, employment gains have exceeded 300,000 workers a month.

The rise in the number of employed has been only slightly larger than the increase in the number Americans in the labor market. This helps explain why the unemployment rate remains stubbornly high. Nonetheless, it is an encouraging sign that people who were out of the labor force three or four months ago now believe it is worthwhile to look for a job. In the first 2 years after the recession began in December 2007 the labor force participation rate tumbled 1.4 percentage points, falling to 64.6% in December 2009. This is the lowest participation rate since the mid-1980s. Since last December the participation rate has increased 0.3 percentage points.

Another indication of employers’ growing demand for labor is the BLS estimate of weekly work hours. The private-sector work week increased 0.1 hours in March. Since December 2009 the private-sector work week has increased 0.6% far outstripping the growth in the number of employees on private payrolls, which increased only 0.1% over the period. As predicted by many economists, in the early stages of a recovery private employers are more inclined to add to the work week and to overtime hours than they are to add new employees to their payrolls. When they see stronger evidence for a sustained rebound in demand for their products, I expect they will be more willing to add to the number of their permanent staff.